A storm of fund valuation, triggered by fluctuations in silver prices, swept through the public fund industry just before the Lunar New Year holiday.
On February 6th, SDIC Silver LOF hit the limit-down again, marking its fifth consecutive day of hitting the lower trading limit. This chain reaction, sparked by a post-market valuation adjustment announcement, has not only inflicted heavy losses on investors but has also exposed significant flaws in the fund's design, valuation methods, risk controls, and communication protocols. As fund discussion boards were flooded with angry comments like "Using Shanghai silver prices on the way up, but international prices on the way down—you sure know how to play the game!", the market is left questioning: which specific links failed during this turmoil?
**Gap One: Controversy Over the 'Timing' and 'Choice' of Valuation Switch Logic** The immediate trigger of this incident was the fund company's announcement after market close on February 2nd, which switched the fund's valuation benchmark from the silver futures contract traded on the Shanghai Futures Exchange to "referencing the prices of silver futures in major international markets." This adjustment caused the fund's net asset value to plummet by 31.5% in a single day. The primary controversy lies in why this "retroactive" valuation adjustment was made only *after* international silver prices had experienced a significant decline, which had already heavily impacted the Shanghai silver price. This approach has been widely criticized as "using international prices to drag down the NAV during declines, but not necessarily synchronizing during rises," forcing investors onto a path of limit-down 'catch-up' declines.
**Gap Two: Intraday Information Opacity, Harming Trading Fairness** Throughout the valuation adjustment process, the fund manager chose to issue announcements only after the market closed. Their official explanation cited "avoiding market panic" and "time required for procedures." However, for investors trading during the market session—especially on February 2nd, the day of the major drop—their decisions were made under conditions of severe information asymmetry regarding the underlying asset's true value. Particularly for those funds that bought at the daily limit-up price, it was akin to blindly catching a falling knife with a high premium. As a professional institution, the fund company should have anticipated the significant divergence between international and Shanghai silver prices. Its delayed information disclosure objectively contributed to losses for investors engaging in speculative trades based on incomplete information.
**Gap Three: Structural Flaw in Cross-Border, Cross-Market Valuation** The fund's prospectus stipulates that the value of its silver futures holdings should be between 90% and 110% of its net asset value. Its design初衷 was to closely track the price of silver. However, when short-term extreme divergences occur between the domestic market and international markets due to factors like trading hours, liquidity, and market sentiment, which price should the fund's NAV be anchored to? This event suggests that the product's initial design may not have fully considered the valuation methodology and contingency plans for such extreme scenarios. Directly and immediately applying international price volatility to a portfolio primarily consisting of domestic contracts challenges its "fair value" assessment.
**Gap Four: Inadequate Crisis Communication Strategy, Exacerbating Trust Crisis** Following the incident, the fund company's official explanations focused on technical processes and "treating all investors fairly," but failed to provide a convincing rationale for the suddenness of the valuation change. Furthermore, the lack of direct, sincere, and empathetic communication with investors led to widespread complaints, severely damaging the fund company's reputation.
**Gap Five: Blind Spots in Investor Suitability Management** As a commodity futures fund, its inherent volatility is far greater than that of ordinary equity funds. Did the fund's sales channels and the manager itself adequately disclose the risks associated with silver's high volatility and the potential for significant premium/discount fluctuations typical of LOF funds during their promotional activities? The fact that large numbers of investors continued to make substantial purchases during the consecutive limit-down days, hoping for a rebound, clearly indicates that many did not fully understand the specific characteristics and the substantial risks embedded in the product they purchased.
**Gap Six: 'Side Effects' of Redemption Mechanisms Under Extreme Conditions** Some investors who redeemed their shares using a "fast redemption" feature *before* the valuation switch were notified by distribution platforms that they needed to "make up" a payment difference. This was because the estimated NAV at the time of redemption differed vastly from the final confirmed NAV. While this follows the rule of "redemption by amount, with surplus refunded or deficit collected," it created an awkward and distressing situation for investors who, while already suffering market losses, faced the prospect of "owing money," exposing a mismatch risk between convenient redemption mechanisms and NAV finalization during special valuation periods.
**Gap Seven: Insufficient Foresight and Guidance Regarding Arbitrage Capital Behavior** The design of LOF funds is intended to allow arbitrageurs to balance the market price with the NAV. However, under conditions of consecutive limit-downs and liquidity drying up, the arbitrage mechanism completely fails, even in the presence of large premiums or discounts. The fund manager appeared to lack effective contingency plans or coordination with market makers to address potential liquidity crises and arbitrage mechanism failure, resulting in a breakdown of the price discovery function.
**Gap Eight: Severe Imbalance Between Product Innovation and Risk Control** The case of SDIC Silver LOF is not isolated. During the commodity bull market, various commodity LOF/ETF funds were issued in large numbers. This event serves as a stress test, revealing potential common weaknesses across this product category—in valuation, risk control, and liquidity support—when underlying assets experience extreme volatility.
**Conclusion** The "five-day nightmare" of SDIC Silver LOF serves as a costly lesson in risk management. In an era of increasingly complex financial products and tight cross-border linkages, even a minor change in a valuation model can trigger a storm. For fund managers, the responsibility extends far beyond merely calculating the NAV; it encompasses meticulous management throughout the product's lifecycle, thorough preparation for extreme scenarios, and steadfast adherence to fiduciary duties as trustees. How to mend these systemic "gaps" and rebuild market trust presents an urgent challenge for SDIC Fund Management.
Comments